credit ratings

October 29, 2011

...according to the sources in this International Financing Reviewstory by Drazen Jorgic:

“I think the fixed income market is 90% driven by people who have their own research,” said Peter Harvey, fund manager and head of credit for Cazenove Capital. ”Big firms like Pimco or BlackRock, and even Cazenove, have their own proprietary research and their own ratings and analysts, therefore they don’t really look at rating agencies.”

For the other 10%, Harvey said, credit rating agencies do a good job. ”Small private banks and ’mom & pop’ investors clearly don’t have 25 investment analysts working for them and the agencies are central to them.”

But if central agencies act as a genuine guide for only 10% of the market, or serve the “mom & pop” investors, clearly their influence could be on the wane.

“Big market players look at the [credit default swap] market and not the rating agencies,” said one chief investment officer.

If most investors don't take credit ratings all that seriously, and already rely on CDS spreads to assess creditworthiness, then regulators may not face insurmountable challenges in their ongoing efforts to decrease dependence on ratings.